Verizon shares (ticker: VZ) closed on Friday at about $47, off 3% so far in 2014 and closer to their 52-week low of $45 than their high of $54. The stock yields 4.5%, and Verizon's dividend-payout ratio based on projected 2014 free cash flow looks comfortable at 60%. This suggests that the dividend is safe.

Verizon looks appealing at 13.6 times projected 2014 earnings of $3.49 a share and 12.4 times projected 2015 earnings of $3.83 a share. These price/earnings ratios are below Verizon's historic multiple in the past decade and are at a discount to the Standard & Poor's 500 index. "On a straight valuation basis, Verizon is cheaper than it has been in some time, and it has great dividend and earnings growth," says JPMorgan Chase analyst Philip Cusick.

Having consolidated ownership of Verizon Wireless, Verizon will now get 70% of revenue and 80% of cash flow from wireless.
Jim Lee/Bloomberg

The company sees revenue growth this year of 4%, but Cusick forecasts earnings-per-share growth of about 11% this year on top of a one-time profit boost from the wireless acquisition. He also sees an 11% earnings gain in 2015. He argues that concerns about rising wireless competition are overblown and already priced into Verizon's shares. "While there are a lot of headlines about price wars, what most people pay today in Verizon stores is exactly what they paid a year ago," he says. Cusick carries an Overweight rating and a $57 price target.

VERIZON RECENTLY CLOSED on its purchase of a 45% stake in Verizon Wireless from Vodafone (VOD), the United Kingdom–based telecom giant. The $130 billion purchase—one of the largest merger deals ever—gives Verizon full control of the lucrative business, which is the leading U.S. wireless company, with projected 2014 revenue of $86 billion and pretax cash flow of $36 billion. To pay for it, Verizon issued $60 billion of stock (1.275 billion shares) with most of the rest paid in cash.

Vodafone holders got Verizon shares, which many have been unloading. Verizon trading volume last Monday—the first trading day after the deal—spiked to 618 million shares, almost 50 times Verizon's average daily volume. Total weekly volume exceeded a billion shares. Many Vodafone holders can't own Verizon because they are limited to European stocks, and others don't want to, fearing that European wireless price wars will hit the U.S.

After remaining above the pricing fray, thanks to what has been commonly viewed as a superior network, Verizon has responded by offering some subscribers more monthly data for the same price and starting a new pricing plan called Edge, which allows customers to pay for their new smartphones on an installment plan, rather than via a subsidized initial purchase. The Street's concern is that Verizon has the most to lose since it has the most profit and highest margins in the industry—its cash-flow margin is 47%, while T-Mobile's is 24%.

Not surprisingly, Verizon is bullish on consolidation of Verizon Wireless, calling it a "major milestone" that should be 10% accretive to earnings per share this year. Verizon will now get an estimated 70% of its revenue and 80% of its cash flow from its wireless business with the rest coming from its wire-line operations.

"Financially, the benefits are straightforward," Verizon CEO Lowell McAdam told analysts on a conference call last week. "It's immediately accretive to earnings per share and provides access to all wireless cash flows. There is no integration risk because we manage and control this business completely today."

Verizon is committed to its dividend, which has been increased each of the past seven years. Those dividend increases have been modest, including a 3% hike last year. One negative: A Verizon executive said that she doesn't expect "any share repurchases for at least the next two to three years." The company's priorities include buying wireless spectrum and cutting its huge $114 billion debt load. That is the largest amount of debt for any U.S. nonfinancial company. While high in absolute terms, the debt is manageable relative to pretax cash flow. Verizon's ratio of debt to earnings before interest, taxes, depreciation, and amortization is just over two; most investment-grade companies keep this ratio below four.

AT&T has been under pressure lately amid concerns about reduced free-cash-flow coverage of its dividend, which now offers a yield of 5.7%, and "pairs" trading among institutions that have been buying Verizon and selling short AT&T.

Both look good, but Verizon could be the better play, thanks to a secure dividend and healthy outlook.